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TMI Blog2021 (1) TMI 282X X X X Extracts X X X X X X X X Extracts X X X X ..... t fund earn on fixed deposits being capital in nature amounts to income from other sources. Transfer pricing adjustment - AR made the contention before us that the adjustment made in the transfer pricing proceedings was made on a protective basis and as per Tribunal's decision in AY 2013-14 in the present assessment year the transfer pricing adjustment would become academic as the expenses would remain to be capitalized and the adjustment will not affect the profit and loss account - HELD THAT:- Contention of the Ld. AR appears to be not correct as the adjustment made by the Transfer Pricing Officer is more of alternative assessment in the nature rather than a protective as claimed by the Ld. AR. There is a substantive assessment in the Assessment Year 2013-14 [ 2019 (8) TMI 835 - ITAT DELHI] . Merely not having any impact/effect to the profit and loss account will not make the present assessment void. Hence, the contention of the Ld. AR that there is no substantive assessment does not sustain. Thus, the protective assessment is valid in this year. Payment of interest on FCCDs - contentions of the Ld. AR that the TPO has inappropriately considered Bright Buildtech as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 8,14,74,438 on protective basis) as against the returned loss of ₹ 9,26,83,394. Ground No. 2: Non-acceptance of the order passed by the Hon'ble Bench in AY 2013-14 wherein the Hon'ble Bench had held the interest income as capital in nature, required to be netted off against the project cost 2. On facts in the circumstances of the case and in law, the Ld. AO/ Hon'ble DRP has grossly erred in not following the order passed by the Hon'ble Bench in AY 2013-14 in Appellant's own case, despite admitting that the facts for AY 2015-16 are exactly the same as AY 2013-14. 2.1 On the facts, in the circumstances of the case in law, the interest income amounting to ₹ 19,62,91,587 accruing to the Appellant in the captioned assessment year, be considered as a capital receipt not chargeable to tax in light of the various judicial precedents including the Hon'ble Supreme Court 2.2 On facts in the circumstances of the case and in law, the Ld. AO/ Hon'ble DRP has erred in not appreciating that if the interest expense was to be capitalized in the cost of the ongoing project, the interest income, being inextricably linked with the ongoing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act, without appreciating that such expenses are revenue in nature and allowable under the provisions of the Act. Ground No. 6: Transfer pricing additions made on a protective basis 6. On facts in the circumstances of the case and in law, the Ld. AO/ Hon'ble DRP has erred in making a transfer pricing adjustment amounting to ₹ 8,14,74,438 on a protective basis without appreciating that the transfer pricing adjustments have been made on interest expenses which have been capitalized by the Ld. AO/ Hon'ble DRP and thus, there would be no impact on the assessed income for the impugned year. 7. On facts in the circumstances of the case and in law, the Ld. AO/ Hon'ble DRP have erred by rejecting the economic analysis undertaken by the Appellant which is in accordance with provisions of the Act, despite the fact that the international transaction was continuing in nature and the same economic analysis was accepted by the Ld. AO/TPO in the earlier years; 8. On facts in the circumstances of the case and in law, the Ld. AO/ Hon'ble DRP have erred by including the Non-Convertible Debenture ('NCDs') issued by Bright Buildtech to its Associa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investor as on date Applicable Interest rate Amount (in INR) Equity with share premium Virtuous Retail Limited, Mauritius - 159,97,85,500 FCCDs ssued FY 2011-12 in Virtuous Pvt. Singapore Retail Ltd., 15% 190,22,75,000 FCCDs ssued FY 2012-13 in Virtuous Pvt. Ltd. Retail 8% 470,67,75,160 Redeemable NCDs issued in FY 2014- 15 Argos Holdings P. Ltd., Singapore 12% 448,00,00,000 Total 1268,88,35,660 4. Out of the above funds, the assessee made investment amounting to ₹ 616,87,44,043/- during the year under consideration. The detail of investment made by the assessee and interest income thereon is tabulated below: S.No. Investment Investment as on 31 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovement as per the provisions of the Act 380,032 Add: Additions on account of transfer pricing adjustment on a protective basis Transfer pricing additions 8,14,74,438 Assessed Income 33,37,98,719 6. Aggrieved by the assessment order the assessee filed present appeal before us. 7. As regards, Ground No. 2 to Ground No. 5 relating to corporate tax additions. The Ld. AR submitted that the Assessing Officer had made similar additions in AY 2013-14, wherein the Assessing Officer had capitalized the interest expenses and treated the entire interest income as income from other sources. The assessee preferred appeal before the Tribunal in AY 2013-14 which was disposed of vide order dated 26.07.2019 in favour of the assessee on this issue. The Tribunal held that the Assessing Officer should treat the interest income as capital in nature and reduce the same from the cost of the ongoing project. The Tribunal directed the Assessing Officer to treat the interest income as capital in nature and netting the same against the proj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Face 8 percent p.a. Virtuous Retail Pte. Ltd., Singapore during FY 2012-13 Value of INR 10 each) RNCD issued during FY 2014-15 448 (Face Value of INR 10,000,000 each) 12 percent p.a. No. of comparable cases 12 12 percent to 12.75 percent The interest @ 15% p.a. paid on FCCDs issued to Vassam Ltd. and subsequently transferred to Virtuous Retail Pvt. Ltd., Singapore was held to be excessive by the TPO. The TPO had held that the correct interest rate on the aforesaid FCCDs should have been 10.717% and, accordingly, upward adjustment of ₹ 8,14,74,438/- was made by the TPO. The Ld. AR further submitted that the adjustment made in the transfer pricing proceeding was made on the protective basis and hence, if the order of the Tribunal for AY 2013-14 is followed in its entirety then the transfer pricing adjustment would become academic as the expenses would remain to be capitalized and the adjustment will not affect the profit and loss account. The Ld. AR su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion relating to payment of interest on FCCDs is at an arm's length. However, the TPO disregarded the approach and economic analysis of the assessee without giving any cogent reasons and determined an arm's length interest rate of 0.717% and proposed to compare the same with the interest of 15% p.a. paid by the assessee on the FCCDs and thereby proposing an adjustment to the income of the assessee. The Ld. AR submitted that the TPO has inappropriately considered Bright Buildtech as a comparable agreement. The Ld. AR further submitted that NCDs issued by Bright Buildtech at 1% rate of interest and these have been issued to an overseas entity namely Clear Horizon Investments Pvt. Ltd. in two tranches. The total amount of the NCDs issued to Clear Horizon is ₹ 365 crores. The Tribunal as per the Ld. AR submissions should consider that from the balance sheet of Bright Buildtech in the year of issue reveals that the book value of the total assets of Bright Buildtech is ₹ 6,54,33,84,492/- as compared to 365 crores which is the total amount of NCD issued. Thus, percentage of NCDs issued to Clear Horizon to the total assets of Bright Buildtech is 55.78%. As per section 92 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he range concept will apply. Hence, the rejection of the economic analysis by the TPO is not applicable in case CUP method is applied and without any basis. 13. The Ld. DR relied upon the order of the TPO, order of the DRP and assessment order. The Ld. DR further submitted that Assessee Company had received funds from foreign entities by different instruments primarily 8CDD and have paid debited interest on these. Simultaneously, it invested the funds in FDR as well as in mutual funds and earn interest and other income on these. There is as such no dispute regarding the nature of expenditure, which is held to be capital in nature. However, the issue involved is that whether income earned out on investment in FDR (interest income) and mutual funds is revenue of capital in nature. The Ld. DR further submitted that the assessee's submissions that the Tribunal in assessee's own case for the Assessment Year 2013-14 held that the receipt are also capital in nature was already discussed in the present assessment year by the Assessing Officer as well as by the DRP. The Ld. DR further submitted that the Tribunal relied primarily on the decision of the Hon'ble Delhi High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in 2015-16. Thus, the applicability of India Oil Panipat Power Consortium Ltd. is not proper in the present assessee's case. The Ld. DR submitted that as clear from the nature of investment it is not at all linked with the business activities but are pure investment nature and thus basic element of inextricably linked is missing. 14. We have heard both the parties and perused all the relevant material available on record. The Ld. AR made the contention before us that the adjustment made in the transfer pricing proceedings was made on a protective basis and as per Tribunal's decision in AY 2013-14 in the present assessment year the transfer pricing adjustment would become academic as the expenses would remain to be capitalized and the adjustment will not affect the profit and loss account. But the contention of the Ld. AR appears to be not correct as the adjustment made by the Transfer Pricing Officer is more of alternative assessment in the nature rather than a protective as claimed by the Ld. AR. There is a substantive assessment in the Assessment Year 2013-14. Merely not having any impact/effect to the profit and loss account will not make the present assessment voi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese have been issued to an overseas entity namely Clear Horizon Investments Pvt. Ltd. in two tranches. The total amount of the NCDs issued to Clear Horizon is ₹ 365 crores. From the balance sheet of Bright Buildtech in the year of issue reveals that the book value of the total assets of Bright Buildtech is ₹ 6,54,33,84,492/- as compared to 365 crores which is the total amount of NCD issued. Thus, percentage of NCDs issued to Clear Horizon to the total assets of Bright Buildtech is 55.78%. As per Section 92(A)(2)(c) of the Act, Clear Horizon shall be treated as an Associated Enterprise of Bright Buildtech since the loan was Clear Horizon exceeds 51% of the book value of the total assets of the Bright Buildtech. Thus, the NCD issued by Bright Buildtech to Clear Horizon cannot be taken as the comparable since Clear Horizon is an AE of Bright Buildtech. The Ld. AR has given the benchmarking results of the comparables taken by the TPO after excluding Bright Buildtech as below: S.No. Company Name Coupon Rate 1 Kapstone Constructions Pvt. Ltd. 21.3% ..... X X X X Extracts X X X X X X X X Extracts X X X X
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